20 Year-Old: What Should I Invest In With 10,000 Dollars?
I’m 20, and recently was given 10,000 dollars from my uncle to invest. Now, I’ve been doing some homework on investing in companies (I’ve picked my favorites), and I want to know which of these companies are best to invest in for long term:
Exxon Mobil (A safe bet, and I think I’ll be able to generate much wealth if I stay with Exxon for many years)
BP (they may recover, and their stock is very cheap at the moment, but I’m very hesitant about BP)
Microsoft (Apple maybe, but I’m worried that the whole Apple phase will end and Microsoft will completely dominate)
Ford (They are doing okay at the moment, I feel like they are going to grow with all their innovations)
First Solar (they have made substantial deals with opening other plants, with making a lot of profit, and I can see solar energy becoming a big business in the future with America’s youth’s obsession with renewable energy, and solar seems like a good bet)
Union Pacific (they have performed very well over the years, and they seem like a good bet for the long term)
Johnson & Johnson (medicine and baby products will always be around)
HP (or maybe…Dell) (I’m favoring HP, they seem to be growing)
I’m 20, so I have a lot of time for profits/dividends/ect. (thank God). If you could tell me which ones are the best for a long term investment that would be fantastic, thank you!
Tagged with: 10000 • Dollars • Invest • should • YearOld
Filed under: Renewable Energy Stock
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This is coming from a 13 year old, but If I were to have a top 2 for that list it would be Apple, and Microsoft these are stable groups, Apple is raging on in my opinion, they have great sales, and the iPad and iPhone 4 seem like a pair ready to dominate. Microsoft due to the fact because it’s very household, all schools use it and generally its a nice idea. Definitely NOT B.P. because they’ve done 3.5 billion dollars in damage to the environment and that takes time, like a LONG time to fix. So hope you enjoy my help. Good luck!
enron madoff , AIG and various banks told us they were doing well right up until they went insolvent, no major company can currently be trusted as to their exact financial position many have multibillion debts which effectively means they haven’t made a cent profit (surplus) in years by classical accounting, moving debt and liabilities off the books is also a favorite at the moment so put your money on deposit with an insured bank , there may not be BP in a while so don’t buy them
J&J is probably the safest of these. Microsoft should be good for the near future as well.
First Solar is much riskier – it may be a while before solar power becomes very profitable, and by that point it might not be this company that takes advantage of it.
BP is also risky. Yes it’s good to buy a stock when it’s cheap, but there’s also a reason it’s so cheap. No one knows how much the cleanup will cost.
I like Ford. I think they came through the recession looking great (not taking bailout money, getting into the hybrid/electric market quickly).
The best advice I can give you is this: if you have any taxable income, open a Roth IRA and invest this money from there. You can invest it wherever you like, and you will never pay taxes on the earnings.
My advice: do not buy individual stocks at all!
Invest in a low-cost, no-load mutual fund or index fund, and let the money sit there and grow for the next 30 years.
If you try to pick and choose stocks, you’ll almost surely regret it. It is not possible for anyone, including experts, to reliably beat the market. That’s the little-known truth about investing. It’s little-known because most investment professionals would be out of a job if everyone knew this fact.
Try unknown small caps that is still solid businesses. They are usually better value.
Wow you have done some research! These are all great companies.
There are 2 important rules to successful investing:
1) Buy leading companies in solid industries led by honest and competent management.
2) Buy these companies at fair prices.
How do you know if a company is good? A good company will be growing consistently on a per share basis. By growing, I mean revenue per share and (more importantly, free cash flow per share). Free cash flow is the amount of money a company generates in a given year that can actually be used to grow the company or pay dividends. If it is just going to be used to pay off debt, maintain existing assets, or to buy new corporate jets, then the money is not really doing you any good as a shareholder. Good management will run a company intelligently with the interest of their shareholders first. Read the annual reports, listen to conference calls, and contact investor relations to get a feel for whether management is competent and honest.
Secondly you need to buy companies at reasonable prices.
Companies are reasonably priced when the expected rate of return from the company (which comes in the form of both growth and dividends) given its current price is equal to other investments which are equally as reliable.
For example a US government bond is considered very reliable. What it says on the bond is what you will receive (the government can always print more money if they have to). So if a US government bond is paying 5% given the current market demand for US bonds, then whatever stock you buy had better be able to earn you at least 5% per year (otherwise you are wasting your time and paying too much).
Currently BP’s stock price gives it about an 11% dividend yield. In addition the company buys back and retires its own stock every year (thus making remaining shares more valuable and increasing the share price). Finally as production increases, and the price of oil increases, BP generates more revenue, more earnings, more cash flow, and more dividends. This causes the company to become more valuable and results in a higher stock price over time.
There are definitely uncertainties in the future of BP given the oil spill, but worst case scenarios expect the company to have to pay about $60 billion in lawsuits. This would be about 2 years worth of cash flow for BP.
So that means that if we believe that exxon mobil is just as reliable as BP (which is fair, both are large oil companies which occasionally have large oil spills from time to time) then we should be willing to pay the same relative price for BP as we would for exxon.
Currently however BPs stock is down (you may have noticed) there are a lot of day traders and large wall street investment banks hammering the stock right now through short selling and fear selling. In the short term the stock market is a casino, a competition among day-traders and wall street firms, in the long term however it is driven by company earnings and fundamentals.
Assuming BP can grow revenues at 8% annually (comparable to historical results), and the company is equally as reliable as exxon mobil (which at its current price may yield about a 10% annual return over the long run, assuming a similar rise in the price of oil), then BP ought to be selling for $80 per share.
However since the company may have to pay 2 years’ worth of earnings out to lawsuits, then you have to discount the value of the company by 20%. (which is 2 years worth of growth that could be earned theoretically in exxon). That means then that perhaps a fair price for BP is about $64. (which is 80% of $80).
However BP is currently selling for $30. Long term investors would refer to this as a “bargain”. Perhaps you should consider more BP?
There are definite uncertainties however. If things get worse, BP might have to pay more, or sacrifice its American business all together (about 30% of the company). This means you would have to discount the value of the company by 30%, plus whatever amount of extra earnings and lost dividends are involved. But how likely is that scenario? That’s your call. The stock market gives you odds, you just decide whether or not you like them. If you do, place the bet, if not, wait for stock prices to go lower until you like the odds better.
In my opinion, FSLR, Union Pacific, and Microsoft are overvalued, but you will have to crunch the numbers and do your own projections about the growth rates for these companies in order to decide if you can justify their current prices. HP and JNJ look fair, but i’m sure there are better out there.
Do some reading, do some research.
for help ; open the first & fourth link on: http://www.all-investing-money.co.cc
Exxon Mobil a safe bet but i’d be worried about keeping up with growth. Pretty safe bet but buy it as a first investment
BP a steal of a deal at the moment. Whatever you watch on the news is always overblown. BP earns 30 Billion a year and has one of the best cash flow i’ve seen in a blue chip. BK is not in the cards. 12% of UK retirees are invested in BP plus they employ millions around the world. Don’t expect BP to just drop dead, its going to the courts! and its gonna be tied up for years. All while they keep earning billions. I do however expect more downward movement until they cap the leak and shut Obama up.
The problem with Microsoft is they so far been able to ahead of competition. A pretty safe play but for someone just starting out it won’t be my first pick.
Im not a fan of ford. Fords in a tough environment doesn’t play a div and again not something I would want to start build a portfolio around.
Don’t know much about First Solar or Union Pacific
J&J a really safe and conservative play
HPQ okay (don’t know much about it) Dell not hugh on growth and it doesn’t pay a div so not something i’d want you to start out on
If I were you i’d split the 10 grand into 5 and invest 8000 into 4 different etf or something along that line. Make sure they all pay divs. Its very safe, gets you into investing and how it works plus a great way to build the core of your portfolio. As far as the last 2000 go pick something you would be intrested in investing in. If you want to invest in MCD cause you love the food go for it. Something you’d be proud to own. But make you get in at what you think is fair value. I’d stay away from small cap speculative stocks until your a little more “experienced” in investing.
Every paycheck put away 50 and by the end of the year you’ll have another good chunk to invest into something alse!
Srry for the spelling, im in a bit of a rush
I won’t comment on specific stocks, as I work in the industry but here some advice I like to give friends who want to put a portfolio together:
1) Bank some in cash… assuming you are funding a rain day fund seperately (and not part of the $10K gift from your uncle). Stick $1000 (& your dividends) in cash… if the market pulls back over 10% invest half of this, when it pulls back another 10%. If it builds to $2000 from dividends, you can take $1000 and buy another stock.
2) Pick an amount $1000, $1500… put that into each stock.
3) Start building your portfolio. Think of it a little bit like putting together a batting order in baseball. Start with a few singles hitters, boring solid non cyclical blue chips… look for solid yielding dividends that growth and have plenty of earnings coverage.
4) Add a couple of cyclical blue chips… doubles hitters.
5) Add something with some pop… a tech stock, a smaller cap company with a high growth rate.
6) Repeat, don’t ignore Solid foreign companies to diversify away from the dollar, and sometime down the line add a gold stock as an inflation hedge.
Don’t just buy a couple of stocks, when I started out in the business the company I worked for had a list of 20 safe blue chip stocks they liked… it contained Enron, WorldCom, AIG & Freddie Mac… yikes! So diversify… that whole eggs & basket thing.
As a co-worker once told me, the best indictation of a good stock is a dividend check that doesn’t bounce.